Oil rises as markets weigh supply cuts against uncertain economic outlook

Oil prices rose on Tuesday as markets weighed supply cuts for August by top exporters Saudi Arabia and Russia against the backdrop of an uncertain global economic outlook.

Brent crude futures climbed 34 cents, or 0.46 per cent, at $74.99 a barrel by 0618 GMT. US West Texas Intermediate crude were at $70.12 a barrel, up by 33 cents, or 0.47 per cent.

“Fundamentals are not having as much influence on price direction as one would expect. Instead, the uncertain macro outlook is what the market is focused on,” ING analysts said in a client note.

“It is difficult seeing this pattern changing significantly in the short term, though the additional cuts do put a stronger floor in place for Brent at around US$70/bbl,” ING analysts added.

US markets will be closed on Tuesday for the nation’s Independence Day holiday. Oil benchmarks had settled down about 1 per cent in the previous session.

Saudi Arabia on Monday said it would extend its voluntary cut of 1 million barrels per day (bpd) from output to August, the kingdom’s state news agency reported. Russia will also reduce its oil exports by 500,000 bpd in August, Deputy Prime Minister Alexander Novak said.

The cuts amount to 1.5 per cent of global supply and bring the total pledged by OPEC+ oil producers to 5.16 million bpd as Riyadh and Moscow look to prop up prices. OPEC+ includes members of the Organisation of the Petroleum Exporting Countries and allies.

US crude inventories were expected to fall by about 1.8 million barrels in the week to June 30, a third straight week of declines. Industry data on inventories will be published on Wednesday and official data on Thursday, both delayed by a day due to the US holiday.

On the macro front, analysts’ forward expectations were mixed after business surveys showed a slump in global factory activity because of sluggish demand in China and in Europe and US manufacturing also fell further in June – reaching levels last seen in the initial wave of the COVID-19 pandemic.

Although GDP gains have been drifting lower in recent weeks due to second quarter downgrades in China and the Europe region, neither the US nor global economies is at imminent risk of falling into recession, amid a strong services sector, waning US goods sector drags and a broad easing of global financial conditions, JP Morgan analysts said in a note.

However, the weaker economic growth demand still suggests demand for merchandise remains weak, which would weigh on distillates consumption, ANZ analysts said in a client note.